Retirees Face Year Without Benefit Bump Millions Face Shrinking Social Security Payments

Millions of older people face shrinking Social Security checks next year, for the first time in a generation .

The trustees who oversee Social Security are projecting that there won't be a cost of living adjustment for the next two years. That hasn't happened since automatic increases were adopted in 1975.

By law, Social Security benefits cannot go down. Nevertheless, monthly payments would drop for millions of people in the Medicare prescription drug program because the premiums, which often are deducted from Social Security payments, are scheduled to go up slightly.

"I will promise you, they count on that COLA," said Barbara Kennelly, a former Democratic congresswoman from Connecticut who now heads the National Committee to Preserve Social Security and Medicare. "To some people, it might not be a big deal. But to seniors, especially with their health care costs, it is a big deal."

Cost of living adjustments are pegged to inflation, which has been negative this year, largely because energy prices are below 2008 levels.

Advocates say older people still face higher prices because they spend a disproportionate amount of their income on health care, where costs rise faster than inflation. Many have suffered from declining home values and shrinking portfolios just as they are relying on those assets for income.

" They don't feel that inflation is low because their expenses are still going up," said David Certner, AARP legislative policy director . "Anyone who has savings and investments has seen some serious losses."

About 50 million retired and disabled Americans receive Social Security benefits. The average monthly benefit for retirees is $1,153 this year. All beneficiaries received a 5.8 percent increase in January, the largest since 1982.

More than 32 million people are in the Medicare prescription drug program. Average monthly premiums are set to go from $28 this year to $30 next year, though they vary by plan. About 6 million people in the program have premiums deducted from their monthly Social Security payments, according to the Social Security Administration.

Millions of people with Medicare Part B coverage for doctors' visits also have their premiums deducted from Social Security payments. Part B premiums are expected to rise as well. But under the law, the increase cannot be larger than the increase in Social Security benefits for most recipients.

There is no such provision for drug premiums.

Kennelly's group wants Congress to increase Social Security benefits next year, even though the formula doesn't call for it. She would like to see either a 1 percent increase in monthly payments or a one-time payment of $150.

The cost of a one-time payment, a little less than $8 billion, could be covered by increasing the amount of income subjected to Social Security taxes, Kennelly said. Workers pay Social Security taxes only on the first $106,800 of income, a limit that rises each year with the average national wage.

But the limit increases only if monthly benefits increase.

Critics argue that Social Security recipients shouldn't get an increase when inflation is negative. They note that recipients got a big increase in January - after energy prices had started to fall. They also note that Social Security recipients received one-time $250 payments in the spring as part of the government's economic stimulus package.

Consumer prices are down from 2008 levels, giving Social Security recipients more purchasing power, even if their benefits stay the same, said Andrew G. Biggs, a resident scholar at the American Enterprise Institute, a Washington think tank.

"Seniors may perceive that they are being hurt because there is no COLA, but they are in fact not getting hurt," Biggs said. "Congress has to be able to tell people they are not getting everything they want."

Social Security is facing long-term financial problems as well. It is projected to start paying out more money than it receives in 2016. Without changes, the retirement fund will be depleted in 2037, according to the Social Security trustees' annual report this year.

President Barack Obama has said he would like to tackle Social Security next year, after Congress finishes work on health care, climate change and new financial regulations.

Lawmakers are preoccupied with health care, making it tough to address other issues now. Advocates for older people hope their efforts get a boost in October, when the Social Security Administration officially announces that there will be no benefits increase next year.

"I think a lot of seniors do not know what's coming down the pike, and I believe that when they hear that, they're going to be upset," said Sen. Bernie Sanders, an independent from Vermont who is working on a proposal for one-time payments for Social Security recipients.

" Seniors are going to need help this year, and it would not be acceptable for Congress to simply turn its back." 5.8% annual cost of living adjustments

At right, the annual percentage increase in Social Security payments. Cost of living adjustments are pegged to inflation, which has been negative this year, largely because energy prices are below 2008 levels.

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'11 0% 14.3% 8.0% 0.0% beneficiaries to take hit

The Social Security trustees project no cost of living increase for the next two years, something that has not happened since automatic adjustments were adopted in 1975.

note*

Before 1983, cost of living increases were awarded in July. Starting in 1984, they have been awarded in January. The change moved 1983's adjustment to January 1984. 1.3% See note* 4.0% This year's bump was the largest since a 7.4 percent rise in 1982.